If the bank says NO, DFS can get you a YES!
DFS are Australia’s first mortgage loan, private lending specialists. It’s the main form of finance we arrange. So if you are looking for a 1st mortgage private loan, you’ve come to the right place!
Read on to find out everything you need to know about first mortgage loans.
You may also wish to read our definitive guide on “How does private lending work in 2020?”
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A first mortgage loan is a secure form of finance where you provide a lender with the title of your property as security. They are great because you will get a good interest rate (compared to a 2nd mortgage or caveat) and they are fast to process. However, if you default on your first mortgage loan repayments, the lender has the rights to repossess your property and sell it to recoup the amount you owe on your loan.
According to the Australia’s most recent Census statistics, 35% of Australian households (2.9 million Australians) have a first mortgage loan.
A second mortgage loan involves placing a second mortgage behind a first mortgage. If you take out a second mortgage loan, your second mortgage lender has secondary rights to your property if you default on your repayments. Your first mortgage lender has the priority to sell your property to recoup their outstanding debt if you default on your repayments with them.
If you also default on your repayments with your second mortgage lender, they will only receive funds that are left over from your property’s sale (if any) AFTER your first mortgage loan is repaid.
It’s important to understand that not all lenders are prepared to accept second mortgage loans because they are more risky. If they do, they charge higher interest rates accordingly.
You also cannot obtain a second mortgage without getting permission from your first mortgage lender (if you’re applying for a second mortgage with a different lender to your first mortgage).
A second mortgage is usually only worthwhile if you have built up a level of equity (ownership) in your property over time BUT you have been refused additional finance by your first mortgage lender.
You can build up equity over time by making your loan repayments and/or your property increasing in value. Australian property has a long-term growth trend in recent decades, even if there are shorter-term periods when property markets stagnate or decline.
Taking out a first mortgage loan is a 3-step process.
1) You to sign a mortgage deed that provides your lender with ‘lien’ over your property.
Lien is a legal term meaning that the holder has the right to the possession the specified property of a borrower until a debt has been repaid. You will sign this mortgage deed over at the same time you sign your other contractual loan paperwork.
2) The mortgage deed will then be registered with the appropriate government department in your State or Territory.
You’ll be required to pay a mortgage registration fee, but it is is currently less than $200 everywhere in Australia.
3) Your lender will then be registered on the certificate of title to your property.
Your property cannot be sold without providing a certificate of title to the buyer that shows the property is unencumbered (debt-free).
Once you have fully repaid your loan (or when you decide to sell your property), you can apply for your mortgage to be discharged. Again, this is a 3-step process:
1) You notify your lender that you want your mortgage discharged and you complete a mortgage discharge authority form.
If there is still money owing on your loan (i.e. you are selling or refinancing the property before you have fully repaid your loan), your lender will have the legal right to have your loan fully paid out from the sales proceeds. You will be entitled to any funds leftover.
2) You (or your lender) sends the completed form to the relevant government department in your State or Territory.
Your bank or the department (or both) will likely charge you mortgage discharge fees. The amount a bank will charge will depend on whether you are discharging your loan early. The amount a government department will charge varies between States and Territories in Australia, but is usually a few hundred dollars.
3) Your details will then be registered on the property’s certificate of title.
You can then keep, sell or refinance your property. The choice is yours.
First mortgage loans are lower risk for lenders and are generally the lowest-interest rate finance you can get. Interest rates in Australia are currently at record lows and the Reserve Bank has indicated that they are likely to remain at current levels for several years due to the economic impact of COVID-19.
It’s important to understand that even a small difference in first mortgage loan interest rates can make a BIG difference to your repayments. It can also make a BIG difference to your return on investment (ROI) in business or property development projects.
It therefore makes sense to get the lowest first mortgage loan interest rates you can get, and first mortgage loans provide you with that opportunity.
First mortgage loans are commonly used for financing the purchase of owner-occupied and residential investment properties (including for bridging finance). However, they can also be used for a range of other short, medium and long-term purposes, including:
We’ll now look at both of these additional first mortgage loan purposes in some more detail.
First mortgage loans are becoming increasingly popular for property development projects. For example, it’s common for property developers to buy land (or parcels of land) with cash. They can then use that land as their first mortgage loan security to finance building work at a lower interest rate than they could get with other forms of finance.
Many multi-residential apartment and townhouse development projects are funded this way. Individual properties within these developments can then be pre-sold during the construction phase or at the end of the project. Part of these funds can be used to help repay the loan or for other cash flow needs.
First mortgage loans can also be used for a range of other business or company purposes besides property development, including:
It’s a great time to buy business equipment at the moment. The federal government has significantly enhanced the instant asset write-off scheme as part of their economic response to the coronavirus pandemic. Up until the end of 2020, you can immediately write off business assets purchased up to the value of $150,000 as a tax deduction. Prior to COVID-19, you could only write off assets up to the value of $30,000.
This effectively means that the federal government is subsidising your investment in your business via you paying less tax. Assets that you can write off include business equipment and vehicles.
What do I need to qualify for a first mortgage loan as a business owner?
All you need is ownership of property in your name that can be used as the first mortgage security for your lender.
How much can I borrow with a first mortgage loan?
The amount you can borrow will depend on the value of your property and the lending policy of your lender. For example, some lenders will be prepared to lend up to 100% of the value of your property, while others may only be prepared to lend up to 80%.
Can I get approved for a first mortgage loan if I have a bad credit rating?
Yes, but it depends on the policy of the lender.
Why should I get a first mortgage loan through DFS?
At DFS, we arrange first mortgage loans for our clients for a living.